Bottom Right Default
State Name: New Jersey
State Name underscore: New_Jersey
State Name dash: New-Jersey
State Name lower underscore: new_jersey
State Name lower dash: new-jersey
State Name lower: new jersey
State Abbreviation: NJ
State Abbreviation Lower: nj

MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

So, why has appraisal fraud gained the foothold that it apparently
has in the mortgage granting process? Is anyone watching the
store? According to the Demos Report, there are a lot of people who might be
or maybe even are watching, but few who have both the power and the motivation
to crack down on abuses.

The Demos reports, "Home Insecurity: How Widespread Appraisal Fraud Puts
Homeowners at Risk," which we have been profiling over several days says
even as evidence of misconduct in the preparation of appraisals has mounted,
neither the federal government nor most states have moved to fix the system.

The federal government is the most likely candidate since the Federal Deposit
Insurance Corporation, Office of the Controller of the Currency, and the Federal
Reserve all play a roll in banking regulation, and Freddie Mac and Fannie Mae,
while publicly traded corporations, still must answer to the Office of Federal
Housing Enterprise Oversight. However, Demos charges that federal efforts
in the area have been ineffective and that recent U.S. Treasury standards calling
on lenders to respect the independent judgment of appraisers do not carry the
force of law. The federal government also has little control over mortgage
brokers who originate the lion's share of mortgage loans.

The states have also dropped the ball, only a few even have laws that deal
with lender pressure on appraisers. Many states, in fact, do
not license mortgage brokers or originators.

Appraisers, in contrast, are regulated by both state and federal agencies,
but much of the regulation is concerned with appraisal standards
and appraiser training. Appraisers complain that the regulations
under which they operate are not at all concerned with the pressure they claim
they are constantly under from lenders and real estate agents.

Appraisers may not even know where to go to file a complaint when they are
confronted with pressure to act unethically. Lenders, as stated above, are either
totally unregulated or are governed by multiple federal and state agencies.
Real estate agents are licensed by the state, but the licensing authority is
sometimes merely a mechanism for collecting business fees rather than a true
regulatory agency. The National Association of Realtors through its state and
local member boards does mediate disputes and will sanction members for ethical
lapses, but its mission is really that of a trade association not a watchdog.

Increasingly appraisers themselves have been turning to the FBI with complaints
of lender pressure and both that agency and its parent Justice Department have
investigated complaints in several states. But the Demos report claims that
the big reason that real estate/mortgage industry regulators have not, themselves,
been more aggressive in addressing the problem is the lack of resources available
to them. The report states:

"According to a 2003 study by the General Accounting Office on oversight of
the real estate appraisal industry, state agencies overseeing appraisers only
have an average of three staff members. The report, which surveyed all states,
found that "about two-thirds of the states said that they needed additional
funding to conduct investigations, and over three quarters said they needed
additional staff'."

Demos does not cite specifics about the resources available to the regulators
of other industry actors, but, in the context of the report, it would appear
that those resources are also limited.

So what is to be done?

The principal recommendation of the Demos Report is "that there should
be an independent and thorough investigation of the scope and causes of appraisal
fraud by an appropriate federal agency" to "be mounted in collaboration
with state regulators with input from a range of actors in the mortgage industry.
A set of reform proposals should be developed from this process."

But, in addition to suggesting yet another study, the report does a credible
job of suggesting a framework for such reforms:

Ensuring appraiser independence. This would, in part be done by reducing
or eliminating contact between appraisers and lenders/brokers. Demos does
not, however, offer any suggestions for how this might be done.

Punishing any of the actors in the mortgage process for pressuring appraisers.
There must be two other preliminary steps: state and federal laws or rules
expressly prohibiting such pressure and the establishment of a regulatory
framework to hold all parties accountable.

Sanctioning dishonest appraisers. Ethics are not always enough when one's
livelihood is at stake. Appraisers must feel that their competitors will not
be rewarded for unethical behavior. Knowing that everyone, including the competition,
faces a serious threat of penalties such as loss of license, would go a long
way toward empowering appraisers to stand up to pressure.

Streamlining the complaint process. This could be done by providing a point
of contact in each of the agencies that regulate a piece of the mortgage industry
so that appraisers or others will know where and how to register complaints.

Increasing Enforcement Capacity. Whatever regulatory changes are made, there
must be regulators with the authority and the resources to enforce them.

Educating consumers. Homeowners will ultimately pay the price when
and if the real estate boom ends, and particularly if it ends disastrously.
They need to be aware that the high appraisal that allows them to buy with
minimum money down or refinance with cash out may not ultimately be in their
best interests. As the Demos report states, consumers have been "urged...to
treat their home equity like a bottomless ATM" and have "unwittingly encouraged
appraisal fraud by pressuring lenders to wrap up deals quickly while paying
no attention to the appraisal step, and by readily accepting higher levels
of financial risk that is prudent.

In the final part of this report a few appraisers will speak for themselves
about the pressures they sometimes encounter in their work.

Comments

Again, a good article. The remedies touted in the Demos are good, but have been discussed at length over the years on appraiserforum.com. However, it took this report to bring the consensus of appraisers out in the open. With a free subscription, all will be able to find specific suggested solutions to various problems facing appraisers today. Refer to this url:
http://appraisersforum.com/forum/index.php?showforum=53

Ter Shields

on

My response as an appraiser was to stop working for mortgage companies. I cut them off when I get that BS introduction whatisyourfeeandturnaroundtime? Next Q is also BS...something like the borrowers need the money and we do not want to cost them more than we have to, so can you pre-comp [illegally pre-appraise] the property?[for free, of course] with vague promise they might pay a full fee if you hit the magic number, which is invariably 30+% above market value.

Anonymous 1 ~4 Now

on

This article is great. Do you have any in regard to fraud & probate? Ive lost my home due to illegal manipulations preformed by legal crooks. It was recently demolished a few weeks ago. I went to Public Records(Norwalk,CA)purchased a copy of the Title.My name on the Title. Any suggestions(besides the normal/typical ones which result in nothing=lawyers/county & state bar associations/legal aides etc.)with any legit resources would be truly appreciated. Sincerely, Anonymous 1~4 Now

Steve Smith, MSREA, MAI, SRA

on

Things are just the way the Lenders want them. Lenders or their mortgage agents order appraisals and put pressure on the appraiser to help make the deal work or hit the sales price. Management bonuses and Stock prices are enhanced when more Fees are booked. On default, the Lender simply sues the appraiser to recover their loss, since the appraisal was inflated and misleading. A great gig for the lenders for the last 13 years. Bad for the appraisers.

Deb

on

I have 1st & 2nd mortages Ive been trying to sell my house since Sept 2004. It was appraised at 195,000.00 in Jan 2005, we have dropped the price down to 175,000. dropping 1000.00 per week . We owe 178,000.00 after realestate agents commission and the title cost etc. I will have to come up with $ to sell the house. Irwin Home Equity say they wont go with a short sale. Wells Fargo the first mortage should get all of thiers. What can I do???

Ex-Appraiser

on

Good article. More specifics. You left out random audits. This industry is not reviewed by an independent agency and as such, does not concern itself with cooking the applications.
This would be a new opportunity for the CPA firms.

V.F.

on

My friend just got an appraisal here on the Monterey Peninsula in Northern California. for $200k more than her house could sell for. I believe the lender told the appraisor what she needed in order to give my friend money out of her house. With the market sliding downward, I'm afraid when she goes to sell it next year (if she can hold on that long) she will be upside down and will end up owing more than she can get. Who can we lodge a complaint with?

anonymous

on

Complaints... always the lenders fault, always the broker's fault, never the customer that puts pressure on the broker that if you "cant get this value, then I will go somewhere else." Lost your home? That is your fault and no one else's. You don't HAVE TO take that much cashout. Right on par with blaming the bartender for over-serving. The problem is not with lenders or appraisers, it is with the citizens of this country not taking personal responsibility for thier actions.

Dudley Tyson

on

I performed an appraisal for *** in California. I mentioned functional obsolescence in that the second floor was just 6 feet high. They asked me to change it so they could sell it to . I said no. They then decrypted my electronic signature and removed the offending statement. I found out because they couldn't get my signature back and asked for a new signature page. I reported them to the ME and CA attorney generals office. That was at least two years ago. I've heard nothing.

ulyesses

on

I recently purchased a house for $215,000 because thats how much it appraised for. The mortgage company that I bought the house from was charged with mortgage fraud. The house is only worth $190,000. Is there anything I can do to the mortgage company for fraud or the person who performed the appraisal?

PATRICIA

on

I refinanced my house with X Corporation and they told me I needed an appraisal. I had one done and it came out to been $580,000. Now I can't sell my house for that price. I never received a copy of the appraisal and I can't find the company on the internet which is Company X Appraisals. The market sale for my area is 480k-500k. They over-priced the house and the loan shouldn't have been approved.

Andy Appraiser

on

I'm an appraiser, if you owe more than your house is worth due to an inflated appraisal, you should sue the pants off of the crooked or incompetent appraiser who helped get you there.

Chuck

on

The pressure is constant and comes from almost every lender. If you don't hit the number often enough you get blacklisted. If you hit it too often you lose your license. The balancing act often becomes quite difficult. Appraisers are supposed to adhere to professional standards, yet lenders are not held to any standard.

Chuck

on

Lender pressure can sometimes be overwhelming. If a customer calls and asks you to get to a certain number, and that customer is 50% of your gross income last year, what do you do? You comply or watch your car get repossessed and your utilities turned off.

J. Munson

on

I am an appraiser in the DC Metopolitan Area. To battle the lender pressure just don't do the comp request and the inflated value appraisal request. Don't send your E&O to your clients. If they request yours you can request that companies insurance also. Lenders can be reported to Fannie Mae for there unethical behavior. I blame appraisers who are unethical for spoiling clients and providing services outside of the USPAP guidelines. Fax over your guidelines to clients so they will become aware.

bobbie

on

We bought our house 5 years ago at 75,000 and had another loan and appraisal done and it came out to 145,000 , just enough to combine the house and all the other bills. We may be the ignorant ones in believing it was worth that much, but I woke up when I went on the website to see what it was worth. It was 90,000 .
I can't believe that we made such a terrible mistake and that there are people that take advantage of us like that. If anyone has any thoughts or advice please let me know.

Anonymous

on

I have experienced the opposite. An honest appraisal was rejected by the lender. What do you do when a property is undervalued?

Founded in 2004, Mortgage News Daily has established itself as a leader in housing news, analysis and data. Our innovative social media platform combines industry leading content and data with an active community of industry professionals, to accomplish our primary goal - keeping our readers informed.